China and India: Twin engines of world economy
Global economic growth has slowed considerably in the past few years and black swan events have only aggravated matters. The US economy grew slower than forecast for the first two quarters of this year, and it is likely to grow at around 1.5% for the whole year. No wonder Chinese and Indian economies are getting the attention they are from the global community. However, some experts are worried that an untoward event might occur in China, hurting its development and, by consequence, the entire world.
China is still the main engine driving global economic growth. During the first half of this year, its economy grew at the rate of 6.7%, reaching 34 trillion RMB. Seven hundred and seventeen million new jobs were created in urban areas, retail inflation rose to 2.1% and per capita income rose by 6.5% nationwide. The economic structure continued to improve, with the contribution of the service sector to the economy reaching 59.8%. Transformation of the economic development pattern saw progress.
Fiscal and financial reforms as well as the reform of state-owned enterprises also witnessed steady progress, and innovation started playing a bigger role in economic growth. Although the non-performing loan ratio of commercial banks rose to 1.81%, the overall financial system remained stable with no systemic financial risk. Overall debt ratio of central and local governments stood at around 40%, which is quite low when compared with developed countries. The fiscal deficit rate was only 3%, still under the internationally recognized safety limit.
The process of reducing capacity has already begun in iron and steel, and coal industries. The aim is to reduce production of crude steel by 45 million tonnes (mt) and of coal by 2.5 mt this year. Production of crude steel and coal will be reduced by 100-to-150 mt and 500-to-800 mt, respectively, in the next five years. This de-capacity process is aimed at improving the economic and energy structure of the Chinese economy, so that 1.3 billion Chinese people can lead a healthier life in a cleaner and greener environment.
China is fully capable of achieving 6.5-7% growth this year, and its contribution to the world’s economic growth will remain around 25%. The new round of economic reforms, rapid urbanization, technological progress, improvement in quality of labour and deepening of international economic cooperation will support China’s medium- to high-speed economic growth in the long run.
However, owing to the large size of the Chinese economy and some structural, cyclical and external factors, the transformation and upgradation of China’s economic development pattern will require more time. The country faces many difficulties in the task of promoting economic restructuring and upgrading, and even more difficulties in fulfilling the responsibility of boosting world economic growth.
The good news, nonetheless, is that this year India is still the third largest engine pulling the world economy forward. Prime Minister Narendra Modi has focused on economic reforms and economic development since taking office, and launched many encouraging plans such as ‘Make in India’, ‘Smart Cities’ and ‘Startup India’. He has travelled far and wide within India and visited various countries around the world. He is perceived as actively promoting economic cooperation between India and the rest of the world. The business environment in India has also witnessed improvement, and foreign investments have increased significantly; infrastructure has gained momentum, fiscal consolidation has strengthened, and inflation has come down. India, like China a few decades ago, is seeing the setting up of industrial parks, construction of new skyscrapers every day, and a continuous forward extension of railways and roads.
India has remained the fastest-growing major economy in the world for the last two years. On the back of a great monsoon, this year is going to be a bumper year for Indians. Timely monsoon and bumper crops would help India achieve 8% GDP (gross domestic product) growth as hoped by finance minister Arun Jaitley. It would increase India’s GDP by nearly $180 billion, which may be only about $100 billion less than the increment of the US economy. It deserves mention that India has firmly taken over the role of the third engine driving global economic growth.
During a meeting, Jayant Prasad, director general of the Institute for Defence Studies and Analyses, told Liu Jinsong, charge d’affaires of the Chinese embassy, that “our confidence in the future of China’s economy is just like that in our own economic outlook”. In the present era of profound economic globalization, our big world has turned into a small global village where the fate of every country is so closely intertwined with another’s that no one can go it alone.
The Chinese and Indian economies are highly complementary to each other as reflected through increasing number of cooperation projects. India’s growing economy is actually helpful in easing the downward pressure on China’s economy. Only if China and India help each other and forge ahead can they bring hope to themselves in a very depressed world economy and illuminate the world as well. It is always better to have more engines powering the world’s economic growth.
The author is minister-counselor at the Chinese embassy in India.